Apr 17, 2024

In the Global South, Chinese EVs Leave European Automakers in the Dust

The low prices of BYD and other Chinese EV makers are terrifying policymakers in Western countries that have domestic car brands to protect. They are right to worry.

A man walks in a showroom with BYD electric vehicle at a BYD dealership in Brasilia, Brazil, October 24, 2023.
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It’s still early in the afternoon, so there are few signs of São Paulo’s notorious rush-hour traffic. “The Chinese are going to rule the world,” Adriano says as we glide through the leafy suburbs in a brand-new Dolphin Mini—a compact little electric hatchback made by Chinese automaker BYD. “They used to copy everything, but now they make the original, and with high quality too,” he continues, pointing to the dashboard and sleek, blue upholstery. Adriano is a BYD salesman and we’re on a test-drive, so he has an incentive to talk up Chinese-made products, but he’s not the only Brazilian who’s impressed by BYD. 

In March this year, the Dolphin Mini became the best-selling electric vehicle (EV) in Brazil, breaking the record held by its slightly larger brother, the BYD Dolphin. Brazil lags far behind the European Union, China, and the United States in terms of EV market share, but sales are growing quickly and BYD is leading the charge. EV sales were up 145 percent in the first three months of 2024, with BYD accounting for over 40 percent of cars sold. Second place, with just 15 percent of the total, went to another Chinese brand—Great Wall Motors.

European Concerns

Europe is watching this development with concern. Last September, European Commission President Ursula von der Leyen announced an anti-subsidy probe into imports of Chinese EVs. The concern is that Chinese EVs might harm European automakers in the same way that Europe’s solar industry was hollowed out by the import of cheap Chinese solar panels. This time, however, the economic stakes are much higher. “Solar is important for energy, but automakers are a big driver of GDP in Europe,” notes Gregor Sebastian, an analyst with Rhodium Group. 

According to analysis from campaign group Transport & Environment, one in four EVs sold in Europe this year will be Chinese-made. If the EU acts quickly, it may be able to hold the line in Europe, but tariffs cannot stop the expansion of Chinese automakers beyond the EU’s borders. 

The top two car brands in Brazil, with around one-fifth of sales, are Volkswagen and FCA, which is part of the Amsterdam-headquartered conglomerate Stellantis. Neither of these companies have bet on battery electric vehicles (BEVs) in Brazil—that job has been left to BYD, which is consolidating its control of the nascent Brazilian market for EVs. If the transition to clean transportation continues at pace in markets like Brazil, traditional automakers like Volkswagen may regret their unwillingness to invest in the car industry of the future.

BYD is placing a big bet on untapped EV demand in middle-income countries like Brazil. Sebastian, the Rhodium Group analyst, says “BYD has had an interesting, very diverse export strategy these past 18 months—it’s expensive to enter all these new markets, and you need the scale of BYD to do something like this.” 

As well as selling in these markets, BYD is also investing billions to set up local EV manufacturing facilities. Since late 2022, BYD has established a joint-venture factory in Uzbekistan worth €150 million; built a €600 million factory in Thailand; announced a €1.2 billion facility in Indonesia; and started building a €1 billion facility in the North of Brazil, on the site of an old Ford factory. BYD also tried building a factory in India and is currently scouting locations for a factory in Mexico. The Chinese company hasn’t forgotten Europe—it is planning a manufacturing facility in Hungary (the German government had hoped it would take over the old Ford factory in Saarlouis in western Germany)—but its sights seem to be set firmly on emerging markets.

This investment is happening on an unprecedented timeline. According to a well-respected industry expert who posts anonymously as TP Huang, “BYD does everything rapidly. In fact, overseas investment is slower than domestic [investments], where signing a contract to factory starting operations often takes just one year. I have never seen a company that moves as fast and thinks as far ahead as BYD.”

Creating a New Market Segment

BYD’s brand new office in the business district of São Paulo is modeled on BYD’s showrooms. Both wide, open spaces, with pure white walls, the main difference between the showrooms and this 16th floor office just below Samsung’s Latin America headquarters is the view. From his desk overlooking BMW's Brazil office, Alexandre Balde tells IPQ that models like BYD’s Dolphin Mini have had transformative effects on the Brazilian market. 

Balde has previously been Minister for Cities in the national government, and Secretary for Metropolitan Transport in the São Paulo government—not a small job in a city of over 20 million people—and he now works as a “special advisor” to BYD. “The BYD Dolphin was a revolution,” he says, “it wasn’t only a new model, or a new brand, it created a new segment in the market.”

Balde is referring to the Dolphin’s revolutionary price point. At a busy BYD showroom in São Paulo, it is BYD’s prices that seems to matter most to customers. I ask one man, who has just bought a BYD Song Plus, whether he chose electric for the sake of the planet. “No, no,” he says dismissively, “it’s just good value.” A taxi driver I speak to later in the day says that many of his friends are buying BYD cars because they’ll be able to save on fuel costs in the long run. 

Sebastian Galarza is the founder of Centro de Movilidad Sostenible (CMS), a nonprofit dedicated to decarbonizing the transport sector in Latin America. He tells IPQ, “perceptions of Chinese products have changed a lot in Latin America—they’re competing in terms of quality, but especially in price.” This is probably why the Dolphin Mini is selling so well. At a starting price of around €18,300, it’s below the average price of a new car in Brazil and is a bargain for an EV.

In truth, Brazilians are buying the Dolphin Mini at a significantly higher cost than customers in China. The same car is sold in China as the BYD Seagull, which started at €9,500 when it was launched in April 2023. These price dynamics also apply to Chinese EVs sold in Europe. Gregor Sebastian tells IPQ that Chinese EV makers are seeking a better profit margin by selling cars at “highly inflated prices” in the EU. One theory for this price mark-up is that Chinese manufactures are seeking to compensate for razor-thin margins in their competitive home market. Sebastian also suggests that export capacity has been limited by logistics, so automakers might as well sell high. Nevertheless, what are high prices for China are still low enough to demolish the competition overseas.

BYD’s Winning Formula

The low prices of BYD and other Chinese EV makers are terrifying policymakers in countries that have domestic brands to protect—hence the EU anti-subsidy probe, launched by the European Commission without an official complaint.

A recent study from Kiel Institute for the World Economy has demonstrated that BYD has received at least €3.4 billion in direct subsidies from the Chinese government. According to Ilaria Mazzocco, a Senior Fellow at CSIS, BYD’s home city government of Shenzhen went “all-in on support for BYD” after EV technology became a national strategic priority in the 2000s. This support included various discounts and tax breaks, availability of credit, the provision of supporting infrastructure, as well as finance for research and manufacturing. 

Clues to BYD’s other big cost advantage can be found in its origins as a battery manufacturing company. “They were a battery manufacturer, so they had all this know-how,” Mazzocco says. BYD still makes all of their batteries in-house, using an iron-phosphate battery chemistry they developed to avoid the more expensive cobalt, nickel, and manganese used in other batteries. BYD manufactures most of their own parts—75 percent according to Balde. “I can’t think of another company as vertically integrated as BYD,” says Mazzocco, “they’ve invested in everything from the mining to the ships that carry the cars, and this allows them an incredible cost advantage.”

Volkswagen on the Wrong Side of History?

Volkswagen is currently the top car brand in Brazil, representing one in every five passenger vehicles sold in 2023. BYD is included in the “others” category that occupies 5.5 percent. But if Brazil continues to electrify at the same pace, this relative positioning might soon change.

In contrast to Europe, which has important domestic brands to protect against a wave of cheap Chinese EVs, Brazil doesn’t see a downside to BYD’s low prices. The Brazilian auto industry is dominated by legacy carmakers like Volkswagen and BMW, which manufacture locally, but are foreign owned. “BYD isn’t a threat because we don’t own the domestic auto industry,” says Marcel Martin at ICCT.

“If General Motors or Volkswagen came to Brazil and wanted to install EV factories, the government would offer the same incentives,” says Martin. But instead, Western carmakers decided to double down on hybrids instead of EVs, following conventional logic that rich countries would electrify before poorer markets. “With some small exceptions,” Martin says, “those same carmakers that are leading the transition in Europe are holding it back in emerging markets like Brazil.” 

Given that BYD is bringing a new industry to Brazil, it is poignant that the site it is building on in Bahia used to be owned by US car company Ford. The Brazilian factory owned by the second biggest EV maker in Brazil, Chinese company Great Wall Motors, was also formerly owned by German brand Daimler. 

Just across the road from BYD’s new office sits the head headquarters of BMW, which decided to prioritize hybrids over electric back in 2021. It’s not too late for European automakers to try and catch up, but BYD is determined to consolidate its early success. “They are running,” Balde says of BYD’s competitors, “they are flying to keep up because they don’t have the product to compete with us yet—but they will, in two, maybe three years, and in the meantime we’re going to consolidate this brand, this market.”

Before Balde is hustled away by his aide, there is time for one more question: “Where is BYD in five years’ time?” Balde replies quickly, “We will be number one in Brazil.” The answer is initially confusing—BYD is already number one for EV sales—but Balde clarifies that he’s vying for Volkswagen’s spot: “No, not for EVs—for the whole market. We are the number one brand in China now, and in five years we will be the number one in Brazil.” 

Jacob Mardell is editorial coordinator of n-ost’s “Spheres of Influence” project and an expert on China’s Belt and Road Initiative.

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